Investment Strategy
We seek to pick winning funds with superior management and quantitative characteristics linked to strong performance. Our quantitative research uses the most comprehensive mutual fund database in the world to determine the best strategies for long-term investing success. We then supplement those studies with extensive qualitative research of portfolio managers, analysts, and traders through onsite visits and follow-up phone calls.
 
About the Editor
Russel Kinnel is director of manager research for Morningstar, Inc. and editor of Morningstar FundInvestor, a monthly print newsletter for individual investors. He also writes the Fund Spy column for Morningstar.com, the company's investment Web site.

Since joining the company in 1994, Kinnel has covered the Fidelity, Janus, T. Rowe Price, and Vanguard mutual fund families. He helped develop the new Morningstar Rating for funds and the new Morningstar Style Box methodology. He also is co-author of the company's first book, The Morningstar Guide to Mutual Funds: 5-Star Strategies for Success, which was published in January 2003.

 
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About Russel Russ' Photo
Russel Kinnel,
Director of Manager Research and Editor, Morningstar FundInvestor
Russel Kinnel is director of manager research for Morningstar, Inc. and editor of Morningstar FundInvestor, a monthly print newsletter for individual investors.
Featured Posts
2 Fidelity Managers Leave
Ray Arani is leaving Fidelity Puritan FPURX, and we've downgraded the fund to a Morningstar Analyst Rating of Neutral from Silver. Here is our take:

Fidelity Puritan's successful longtime lead manager Ramin Arani will retire at the end of 2018. Dan Kelley will then assume the lead role. We are downgrading the fund's Morningstar Analyst Rating to Neutral from Silver as Kelley establishes himself at the helm.

Dan Kelley joined the management roster in July 2018. A Fidelity veteran, he joined the firm in 2005 as a real estate analyst. He has managed Fidelity Trend FTRNX since January 2012 and Neutral-rated Fidelity Advisor Diversified Stock FDESX since April 2017. Fidelity Trend's returns under Kelley have kept pace with its Russell 1000 Growth Index benchmark, but it has experienced higher volatility than that bogy, leading to less impressive risk-adjusted returns. His record on Fidelity Advisor Diversified Stock, which has a growth bias but takes more of a core approach, is too short to assess. Prior to those charges, Kelley successfully managed Fidelity Select Construction & Housing FSHOX (2007-12). On Fidelity Puritan, Kelley will manage the fund's equity sleeve and allocation decisions. It remains to be seen how Kelley's experience on more-specialized equity funds will translate to this fund's equity portfolio, which has a broader mandate. Plus, Kelley lacks experience in making asset-allocation decisions. One bright spot is that Fidelity's capable fixed-income team remains in place: Comanagers Michael Plage and Harley Lank continue to manage the investment-grade bond and high-yield sleeves, respectively.

We don't expect material changes to the fund's strategic allocation, which targets a neutral allocation of 60% equity, 35% investment-grade bonds, and 5% high-yield debt. Arani has capably adjusted the fund's equity and fixed-income sleeve weightings over time. Since the end of the global financial crisis, the fund has had a more aggressive bent, with equities consistently above its neutral level and at times above 70%. Arani also managed the stock sleeve with a growth tilt. That's likely to continue under Kelley, given his growth bias on other charges, though this fund won't be as growth-oriented as Fidelity Trend.

Manager Change in Store for Fidelity Tech Fund
Fidelity Select Technology FSPTX manager Charlie Chai will be leaving the fund at year-end 2018. Nidhi Gupta, who currently runs Fidelity Select Multimedia FBMPX, has joined as comanager and will succeed Chai as lead. The fund, which previously carried a Morningstar Analyst Rating of Bronze, is Under Review.

LSV Small Value Joins M500
We have added LSV Small Value LVAQX to the Morningstar 500. Here is Linda Abu Mushrefova's take:

LSV Small Cap Value's proven process and deep management team earn the fund a Morningstar Analyst Rating of Silver.

A robust team of committed value investors has delivered strong long-term results here. Josef Lakonishok, who founded LSV in 1994 with two now-retired partners, has built an experienced and stable 12-member team with three academic advisors. The 12-member team boasts three Ph.D.s and more than 13 years at LSV, on average. All members of the investment team except for most recent hire Gal Skarishevsky are LSV partners but no managers invest in the fund--an area that could improve. The team's credentials, size, and high retention rate are appropriate for its quantitative approach. Their commitment to academic research aimed at bettering its quantitative model has driven its disciplined approach.

That approach focuses on identifying small-cap companies with attractive earnings and valuations but that have recently underperformed. The process pushes the portfolio into deeper-value stocks than its benchmark, the Russell 2000 Value Index, because academic research shows that small, cheap stocks outperform over the long term. The team continuously researches ways to enhance its models and has made numerous modifications since inception. But the team hasn't chased quantitative fads and remains highly convicted that out-of-favor companies with strong fundamentals and attractive valuations outperform over the long run. The team runs its model daily but trades far less frequently than many quant strategies; turnover remains well below the peer group average, too.

This approach has come with some bumps but has compensated investors. The fund has had an above-average standard deviation relative to its small-value peers, but it has been accompanied by a 13.4% annualized gain that tops the Russell 2000 Value Index's 11.8% and the 11.5% category average. Its three-year rolling returns top peers' and the benchmark's 76% and 69% of the time since inception, respectively. The separate account, which dates back to February 1997, has topped both bogies since inception.

 

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